Green Industry: the new activists

Posted: 2002

Author: Andrea Spencer-Cooke

Can industry deliver sustainability? A quick glance at the corporate track record gives sobering food for thought. While it has undoubtedly brought improvement in standard of living for many of the world's citizens, much of the past half century of economic development and industrial growth has come at the cost of endangering the very life-support systems of the planet and its social fabric.

Three decades of environmental activism and human rights campaigning have helped to highlight major issues, pinpointing corporate wrongdoing, raising industry awareness and weaving a closer regulatory framework. But it has also activated some areas of business itself.

Whereas calls for the protection of the environment and the promotion of social justice used to hail almost exclusively from outside the factory gates, today some pioneering companies are beginning to build a broader, more inclusive vision of their role in society. What we are seeing is the emergence of a new breed of activist, this time operating within the corporation.

Welcome to the era of proactive business. Pressured to face up to a legacy of environmental degradation and social displacement, a growing number of the world's big companies are taking up the reins of good corporate citizenship. As well as shouldering responsibility for, and mitigating, their environmental and social impacts, they are starting to reassess how they do business and have begun to consult and involve their stakeholders more fully.

Fundamental shift

It marks a fundamental shift in corporate thinking. At the root of this new corporate activism is the belief that greater social and environmental responsibility is good for business. As the chair of Belgium's Société Générale, Viscount Davignon, spelled out at a conference on corporate social responsibility in Brussels in November 2000: "There is no good business in a bad community. We have no choice but to be responsible."

Many would argue that such a realisation is long overdue. Even so, the pace of change since the early 1990s has been impressive. First environmental issues, then social and ethical, have risen up the corporate priority ladder to become board-level concerns. Whereas such issues once remained in the realm of public relations, now they are becoming strategic.

The more enlightened companies are starting to see environmental and social excellence as a source of competitive advantage. By reducing ecological burdens and embracing their shareholders, suppliers, employees,customers,and related comunities, the new thinking goes, firms can demonstrate they are trusted stewards of the environment who deserve their license to operate in society.

Rather than viewing environmental responsibility as a costly 'add-on', such companies are seeing it as an integrated part of doing business. Managing resources more 'eco-efficiently'- using fewer inputs and producing less waste for the same unit of output - benefits the bottom line.

Zero waste

In keeping with this, American chemical major DuPont has adopted a company-wide goal of 'zero waste' as part of its drive for sustainable growth. In the words of Paul Tebo, former vice president for safety, health, environment: "The quicker we get to zero waste, the quicker we'll have 100 per cent product."

This logic is winning over others, too, who see that there are profits to be had from reducing waste and using fewer resources. Dow Chemical has also adopted a 'Vision of Zero' with the aim of eliminating injuries, accidents, illnesses and environmental harm resulting from its operations.

Thanks to such initiatives, in the US chemical industry as a whole during the 1990s, emissions dropped 60 per cent in six years, while production rose 20 per cent, successfully de-coupling growth in pollution from growth in production.

Precautionary approach

Impressive as this may be, critics argue that the pace of progress needs to be stepped up and that, for the majority of companies, the real challenges still lie ahead. The chemical industry, for example, has yet to come to terms with bio-accumulation issues and the substitution of hazardous substances.

Under pressure from Greenpeace, Motorola, Samsung, Nokia, Addidas, Reebok, H&M, L'Occitane and Chicco Toys recently agreed to adopt a precautionary approach to the use of toxic chemicals in their products, but the long-term effects of synthetic chemicals upon ecosystems and human health remain unknown.

The truth is that although considerable environmental progress was made by industry during the 1990s, much of this involved a handful of proactive companies plucking the 'low-hanging fruit', or fashioning easy 'win-win' solutions.

Stefan Schmidheiny, founder of the World Business Council for Sustainable Development (WBCSD), a proactive industry-led environmental NGO, acknowledges this. Although he is proud of the progress made to date towards sustainability, he regrets this has not been greater.

DuPont Chief Executive Officer (CEO) Chad Holliday agrees; "the closing decades of the twentieth century were marked by significant environmental progress. We responded constructively to the environmental crises of the 1970s and 1980s, and in the 1990s we turned our attention to the ultimate challenge-sustainable growth."

For some this is a contradiction in terms, for Holliday it means "aligning shareholder value creation with meeting important societal needs and values while we continue to reduce our environmental footprint." It's a laudable aim. What happens where shareholder and societal values clash remains to be seen.

Beyond petroleum

Whichever side of the green debate you stand on, concepts such as sustainable growth are helping pave the way for fundamental technological transformations in the 21st century.

"We knew seven years ago that we had to take a stand on climate change," states BP Amoco Group CEO Lord John Browne, "the evidence for precautionary action was growing." Companies such as these are busy carving out a future for themselves in a post-petrol world. Their aim, says Browne: "to be there for the long term and to be a positive influence. BP has even gone so far as to change its logo to a sun, and - until shareholders baulked - to re-christen itself 'Beyond' Petroleum.

Shell, for its part, has got a toe firmly in the renewables door by setting up hydrogen and solar business units and has upped its investment in new energy businesses from $500 million over five years in 1999 to between $0.5 billion to $1 billion over five years. This will be primarily, but not exclusively, spent on solar and wind energy. Although it remains a drop in the ocean compared to the company's investment in exploration and new oil reserves, it's a step in the right direction.

So, too, are the ventures by leading automotive manufacturers into the realm of hybrid technology. In 2006, Ford Motor Company's Mercury Mariner Hybrid claimed Green Car Journal's "Green Car of the Year" award, in recognition of environmental leadership in the automotive industry. While doing nothing to reduce congestion, Ford's hybrid does achieve nearly 50 per cent higher city driving efficiency and is capable of travelling some 400 miles per tank, while meeting the cleanest emissions achievable by a fossil-fuel vehicle, the company states.

Along with similar developments at DaimlerChrysler, Siemens, Toyota, Honda, Texaco and Ballard Power Systems, such innovation is laying the foundations for clean transportation systems in a post-carbon future.

Resource efficiency

Clean technologies are one part of the business arsenal for tackling the challenge of sustainability. So, too, is more efficient use of resources. US floorings firm Interface Flooring Systems is a striking early pioneer of 'dematerialisation'- namely reducing the amount of product needed to provide a service. Interface's 'Evergreen carpet lease' programme aims not to sell square metres of carpet, but to lease flooring services to customers. Since the tiles belong to the company, there is an incentive to make them better quality and more durable and because only those tiles in high-use areas need frequent replacing, less carpet can be manufactured. Not only does this provide greater functionality to the customer, but it closes the waste loop by ensuring old carpet tiles are recycled and remanufactured.

Companies like Xerox, Swedish logistics firm ASG and Swiss lift manufacturer Schindler are also actively exploring this core business shift from selling quantity of product to quality of service, paving the way for Factor 4 or even Factor 10 increases in resource efficiency.Arguably, radical business innovation such as this provides our only tangible hope for achieving any kind of global environmental sustainability.

With world population estimated by the UN to reach 9.1 billion by 2050, meeting even the most basic needs of the world's people will require quantum leaps in resource efficiency. Harnessing industry's creativity and innovation in pursuit of this goal will require governments, consumers and investors to set the right frameworks and send the right market signals. For a small handful of companies, doing well by doing good is reward in itself; for most of industry, the incentive to be sustainable will simply not exist until markets and regulatory frameworks actively reward proactive players and make polluters pay.

Measuring sustainability

This situation is reinforced by the fact that the mainstream financial community has been slow to embrace sustainability performance factors in company evaluation and investment decisions. Instead, it has been socially responsible investment (SRI)- a niche player just ten years ago - which is making inroads into the mainstream.

During that time, SRI screening has evolved from a primarily 'negative' approach, excluding certain companies or industry sectors, to a 'positive' approach that aims to identify 'best-in-class' performers. Both the UK FTSE and US Dow Jones have launched sustainability indexes based on this approach, FTSE4Good and the Dow Jones Sustainability Index, which now claims some 56 licensees representing Euro 3.3 billion under management.

One issue that is capturing the attention of the financial community is climate change. Faced with mounting insurance claims and the prospect of emissions trading, a group of institutional investors representing some US$22 trillion in assets under management has launched the Carbon Disclosure Project, an initiative to highlight which companies are being transparent on their efforts to curb greenhouse gas emissions.

The resulting Carbon Leadership Index singles out 'best in class' companies, such as Denmark's Novo Nordisk, which stand to benefit in a reduced carbon business environment. This marks a sea-change compared to 1990, when such data would undoubtedly have been considered proprietary and reporting it publicly unthinkable.

While reporting and accounting standards in the environmental and social domains still have some way to go, increased transparency and wider dialogue have been one of the major triumphs in the greening of industry.

Another sea-change has occurred in the area of corporate social responsibility (CSR). From its origins in philanthropy, CSR has evolved, at its higher end, into trying to ensure that core business activities have positive social impacts. And from a concentration on improving local community relations, CSR has grown to encompass development goals on a global level.

Human development

Whereas defending human rights and tackling poverty in the developing world were previously shrugged off by business as the responsibility of governments and aid organisations, companies are beginning to realise they have an important role to play in human development.

In BP's Sustainability Review 2004, Lord Browne acknowledges that promoting and protecting human rights "is a legitimate concern of business" and shares the belief that "business is a key to unlocking poverty." The oil major is currently exploring how its business activities and community investments - which between 1994 and 2004 increased by nearly US$30 million outside Europe and the US - could better serve the United Nations Millennium Development Goals.

This vision of business as a catalyst for development is arising as leading companies turn their attention to the emerging markets that promise to be the economic growth engines of the next decade. While the idea of converting four billion poor people into western-style consumers fills many with alarm, it may, paradoxically, help promote more sustainable lifestyles.

Faced with public outrage over rampant globalisation at the World Trade Organisation (WTO) talks in Seattle in 1999, business is anxious to prove that globalisation can exert a positive influence on industrialisation in the south. Adopting the highest global operating standards wherever companies have a presence in the world could, for example, help raise environmental and labour standards.

More fundamentally, devising new business models which address development needs in the South while minimising ecological footprints could prove a vital lever for change. If companies can supply the very poor sustainably with clean water, healthcare and energy, this would go a long way towards meeting the needs of the present - one of the key social tenets of sustainable development, yet one that has, to date, signally failed to be achieved.

Moral imperialism

Progress notwithstanding, the picture is by no means all rosy. In terms of net impact, sheer economic growth threatens to neutralise even the best social and environmental intentions of the world's largest corporations. With fisheries, for example, on the brink of collapse, one can ask whether this is all too little, too late.

Perversely, stringent social and environmental standards in the north can also serve as trade barriers against developing country exports, leading to accusations of moral imperialism and, counteractively, hindering much needed economic development. Qualifying for a certified environmental management system may be prohibitively expensive for firms in the south and access to environmental best practice, innovation and technology limited.

Even worse is the dumping in developing countries of harmful wastes, obsolete technologies and banned products, all still prevalent in spite of measures foreseen under the Basel convention.

Cynics will argue that much of the apparent groundswell of change visible today, along with the assertions so vocally made by large companies, are mere lip service and that business is ignoring the really big issues. These include distorting trade subsidies, lobbying, corruption and the legitimacy of global institutions.

Even the most proactive companies may still be found to be engaging in controversial practices in different parts of the business - and the majority of companies probably stand guilty of wanting to keep their products on the market for as long as possible even once more sustainable alternatives exist.

Some of the 'sustainable' solutions proposed by business, moreover, such as genetically modified organisms (GMOs), remain highly questionable. It is true that much of the good practice cited here is restricted to a handful of companies and that the bulk of the corporate sector, especially small and medium-sized enterprises, still have a very long way to go. But it is also true that over the past ten years, a handful of visionary individuals within industry have taken sustainability issues to heart and are effecting fundamental changes to the way business is being done.

Market framework

Is it fair to sit back and expect industry to deliver sustainability? The simple answer is no. Companies - and those who campaign for change within them - are only one part of the equation. They can change, they can clean up, they can design better products and processes. They can reach out to all those involved in the business and be a force for good. But sustainability will require more than that.

It will require market frameworks that make polluters pay and help the poor to raise their standard of living. It will require international institutions that empower all and promote level playing fields. It will require governments that respect human rights and ensure access to sanitation, education, justice and livelihoods for their citizens. And it will require discerning investors willing to invest for the long term and informed consumers willing to pay for change.

Viscount Davignon got it right: there can be no good business in a bad community. Making sure good businesses thrive in our communities is down to us all.

Andrea Spencer-Cooke is a freelance sustainable business consultant and former editor of Tomorrow Magazine, a leading global sustainable business publication.